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Golden Rules of CFD Trading

by ETF Base on August 30, 2016

Many novice traders make mistakes when beginning CFD trading and even professionals can destroy their careers if they don’t follow the golden rules of CFD trading. Minimize the risks of trading with CMC Markets by following some simple rules.

Don’t cling to a losing trade. Most traders give up early on in the game and close their accounts because of one loss which they cling on to. Holding on to such losses result in your profits suffering because you will feel the need to cash in on profitable trades early on. This will result in minor wins and less catastrophic losses but it won’t get you to your main goal.

Never Use Emotion. A trader who bases all their choices on emotions rather than logic are proven to have a higher loss rate. If you go by gut feel you might have the occasional win but will rarely make a lot of profit. Having rules, a plan and a strategy and sticking to them is vital if you want to make money.

Never limit yourself to one single trade. If you start to trade all your capital on one stock or share then you are essentially becoming a gambler, not a trader. Through statistics it has been said that if you never risk more than two percent of your capital on one single trade, no one loss will result in disaster.

Use both fundamental and technical analysis. A trader who combines both these methods when trading will have a better chance of becoming successful. A good rule which holds strong with many traders is to use fundamental analysis to trigger the trade and then to use technical analysis to time the exact entry.

Timing is key. Entering into a trade too early could result in serious losses. Wait for a trigger and at least one signal to confirm it will ensure that this won’t happen. Making sure that your timing is right so that you can gain as much profit as possible.

Don’t add more money to losing trades. A lot of mistakes that traders make is that they add money to losing trades with the hopes the price will turn around. A good trader will learn to understand the difference between range-bound and the trending markets. Keeping up to date and knowing how to use trend lines is a simple technique that can put this theory to the test.

Know your weaknesses. One of the most important aspects in a trader and how they trade is their mental makeup. Knowing your weaknesses and being able to not give into greed or fear is vital to becoming a success. Be strict with yourself and trade using a well thought out plan.

Understand the risks and understand the rewards. It isn’t important that you understand just one, you have to know the risks you are taking and the possible reward you could get from taking that risk. Don’t ever look at trading as you would a game or gambling for that matter. Be sensible with your choices and never go into a trade if you think that the reward is bigger than the risk you are taking because most of the time it isn’t.

Being able to understand the basic rules and knowing them when you are in a tough situation is vital to becoming a success. Always look back from time to time to gather your thoughts and to be level-headed with the trades you make. Trading can be both exciting and profitable but it can lead to stress, debt and financial problems if you don’t walk into the trading arena with the correct skills, investment and logic. It is a place where common sense is needed and intelligence that will lead you to the top. Don’t ever expect anything because this will lead to emotions which will change your direction when making a following trade.

Take a strategy and keep to it. Always do extra research and keep up to date with the latest news on stocks and shares. Understand your position as a shareholder and be sure you know the risks that are involved when investing in a stock, currency or a share.